Question

Jerry, the manager of a small printing company, needs to replace a worn out copy machine. He is considering two machines; each has a monthly lease cost and a cost per page that is copied: • Machine 1 has a $422 monthly lease with a 2.1 cent per page cost up to 250 pages, and then 1.4 cent per page after the 1st 250 pages. • Machine 2 has a $566 monthly lease with a 1.6 cent per page cost up to 250 pages, and then 0.9 cent per page after the 1st 250 pages. Jerry knows the break-even point is more than 250 pages for each machine. Determine the break-even point (per month) in terms of the number of copies for each machine if Jerry charges customers 5.0 cents per copy. Based on this, which machine do you recommend?

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

Machine 1

$422 monthly lease.

1.4 cent per page after the 1st 250 pages.

Machine 2

$566 monthly lease.

0.9 cents per page after the 1st 250 pages.

Selling price 5.0 cents

Break-even point= fixed costs/ contribution margin

Machine 1:

1 dollar= 100 cents

Break-even point= 422 / (0.05 - 0.014)= 11,722 copies

Machine 2:

Break-even point= 566 / (0.05 - 0.009)= 13,805 units